http://www.chicagotribune.com/news/local/chi-taxstudy12nov12,0,2414572.story
Special tax districts hit wallets but spur growth, study finds
Study says spurring growth is trade-off
By Liam Ford | Tribune staff reporter
November 12, 2007
Even as Illinois homeowners nervously wait to see if local taxes will take an even bigger bite next year, a new study offers glum news: Hundreds of special economic development districts scattered across the state are adding to property owners' tax rates.
At the same time, the study to be released Monday also found that the districts are needed to foster economic growth.
The special districts, where local governments use what is known as tax-increment financing to subsidize everything from new homes to factories to shopping malls, have long been controversial because many taxpayers fear that they lead to higher property-tax bills.
And school districts and other governments often oppose the TIF districts because of similar fears that they soak up tax money.
The report, which will be issued by the Civic Federation, a Chicago-based budget watchdog group, finds that the districts do result in higher taxes for property owners. But the study also found that the districts often do not take revenue away from other governments, and when the districts expire, the rates go down because of a wider tax base.
While they operate, the districts "do have an impact on taxpayers," said Laurence Msall, president of the Civic Federation. "They increase the tax rate that they have to pay."
However, the exact impact on taxpayers is hard to calculate, the study said.
The districts result in some taxpayers outside their boundaries subsidizing development in those districts. For example, taxpayers outside Chicago's special districts pay a higher proportion of taxes to governments such as the Cook County forest preserves because of the city's 158 districts, the study finds.
Local governments need the special districts to encourage growth, and if the districts were ended, other tax money likely would be used to encourage new businesses, Msall said.
"Eliminating [the] districts would not decrease taxes, unless governments decided to end their economic development activities," Msall said.
The special taxing districts, created to resuscitate "blighted" areas, freeze the amount of property-tax money going to local governments and divert any new money to local redevelopment projects.
The amount of money that school districts lose is often small, in part because state aid makes up the difference, the study found.
In Park Ridge a development district at Touhy Avenue and Northwest Highway has resulted in a residential and retail complex with 189 condominiums and townhouses and 70,000 square feet of retail.
Before what is known as the Uptown District was in place, "we had not had a single new building built in our downtown since 1988," said Park Ridge City Manager Timothy Schuenke. "If it was going to happen anyway, why didn't it?"
In towns as far-flung as Des Plaines, Riverside and Lindenhurst, as well as Chicago, critics say many of the areas covered by the districts would see economic development even if the districts were not in place.
The study found, however, that in Chicago and other cities, that is not the case.
The districts have "generated about $8 billion in private investment, through $1.5 billion in public investment," in Chicago, said Pete Scales, a spokesman for the city's Department of Planning and Development.
The study found that taxpayers cannot easily figure how the money in the districts is being used because information about what is collected and spent is not readily available.
For example, Chicago levied about $1.1 billion in property taxes in 2005 but reported only $715 million in its budget because the other $386 million was taken in by the special districts -- a situation reflected in other municipalities throughout the state.
The study recommends that state law be changed to make the districts' finances more transparent, such as including taxes that go to the districts in cities' budgets.
The districts do not necessarily lead to squeezed budgets for local school districts, the report found. When school districts lose out in property-tax revenue, they are largely able to make up the difference by getting greater state education aid. And tax caps would often keep governments from gaining much extra revenue because of the new development.
"The impact ... on school districts is minimal," Msall said.
Some who have experience with the special taxing districts say they can result in schools and other governments losing money, if they are used somewhere development would have taken place anyway.
In those cases, "depending on the circumstances, they could result in a district losing money or losing access" to new sources of revenue, said Dean Krone, who has helped school districts in Des Plaines and Park Ridge ensure that they do not lose money because of the redevelopment areas.
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